Opec’s economic clout set to grow

The world economy will witness a $2,000bn shift in wealth and power from oil-consuming countries to members of the Organisation of the Petroleum Exporting Countries as oil prices rise to $200 a barrel by 2030.

That stark assessment will be made next week by the International Energy Agency, the western countries’ energy watchdog, which will also warn that oil prices could rise even further because national oil companies in oil-rich countries are likely to delay investment decisions.

The IEA’s flagship World Energy Outlook annual report does not map the impact of the surge in Opec’s revenues.

But the jump is likely to have profound implications for equity, foreign exchange, fixed income and commodities markets as the cartel recycles its petrodollars.

The IEA says that Opec oil reserves are big and cheap enough to increase production and cap oil prices, but it warns: “Investment by these countries is assumed to be constrained by several factors, including conservative depletion policies and geopolitics.

“There remains a real risk that underinvestment [bet­ween now and 2015] will cause an oil supply crunch,” the report states.

The projected near-tripling of Opec’s revenue to $2,000bn by 2030 from last year’s $700bn comes on the back of significantly increased oil price assumptions.

In its report, the IEA sees oil prices reaching $200 by 2030, almost doubling last year’s forecast of $108 by the same year.

The report suggests that current oil prices – below $70 a barrel and less than half their peak summer level – are a temporary effect of the economic crisis.

It says that in the future the world will face “persistently high levels of consumer spending on oil”.

“While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the IEA says in the executive summary of the report, to be published next week.

In the short term, however, prices are likely to remain highly volatile.

But it adds: “Beyond 2015, we assume that rising marginal costs of supply exert upward pressure on prices through to the end of the projection period [2030].”

The Financial Times obtained a copy of the report’s 13-page long executive summary, which was drafted only a few days ago, and was not under embargo. The IEA refused to comment.

Oil prices hit an all-time high of $147.27 a barrel in July, but since then have fallen back to $60-$70 a barrel as consumption has weakened.

West Texas Intermediate crude oil, the US benchmark, yesterday fell $4.30 to $66.22.

In its report, the IEA assumes a rebound from today’s levels, expecting oil to trade, in real terms adjusted by inflation, at an average of more than $100 a barrel from 2008 to 2015.

By 2030, prices will be more than $200 a barrel, or more than $120 when adjusted for inflation.

“These [price] assumptions point to persistently high levels of consumer spending on oil in both OECD [Organisation for Economic Co-operation and Development] and non-OECD countries,” the IEA report says.

Over the next 22 years, consuming countries will devote 5 per cent to 7 per cent of their gross domestic products to pay for their oil, up from 4 per cent in 2007.

This will have “serious adverse implications for the economies of consuming countries”.

“The only time the world has ever spent so much of its income on oil was in the early 1980s, when it exceeded 6 per cent,” the report says. In 1998, when oil traded just above $10 a barrel, the world spent just 1 per cent of its GDP on oil.

The much higher oil price assumptions, on top of concerns about climate change and the daunting challenge of investing enough in new production, prompt the IEA to warn that the “current global trends in energy supply and consumption are patently unsustainable – environmentally, economically, socially”.

“The surge in prices in recent years culminating in the price spike of 2008, coupled with much greater short-term price volatility, have highlighted just how sensitive prices are to short-term market imbalances,” the report adds.

“They have also alerted people to the ultimately finite nature of oil and natural gas resources.”

The steep rise in oil prices over the next 20 years, on top of rising production, will trigger a large windfall to Opec countries, which are forecast to earn the equivalent of about 2 per cent of the world’s GDP, up from last year’s 1.2 per cent.

The cartel will control 51 per cent of the world’s oil supply by 2030, up from last year’s 44 per cent.

Saudi Arabia will remain the largest producer with its output rising to 15.6m barrels a day in 2030 from the current 9.5m b/d.

The shift will be keenly felt among international oil companies such as ExxonMobil of the US and the UK’s BP.

Their access to oil reserves will become increasingly curtailed because the world’s remaining large reserves are in the hands of countries unwilling to open their doors to them.

Referring to Opec and other non-Opec countries that restrict foreign companies, such as Mexico or Russia, the report warns: “It cannot be taken for granted that these countries will be willing to make this investment themselves or to attract sufficient foreign capital to keep up the necessary pace of investment.”

There's also this sidebar:

An end is urged to fossil fuel subsidies

An end to the enormous subsidies paid to fossil fuel energy generators will be needed to set the world on a path of low-carbon generation, the International Energy Agency will say next week, writes Fiona Harvey.

The IEA will say that subsidies on energy consumption were $310bn for the 20 biggest countries outside the Organisation for Economic Co-operation and Development in 2007.

Converting this subsidy to lower-carbon energy sources could be the biggest source of support to low-carbon energy, including renewable sources, and carbon capture and storage.

The agency believes the energy sector will have to play the central role in turning the world from high- to low-carbon energy sources. But the transition cannot be achieved without “radical action by governments” – for instance by putting a higher price on carbon dioxide emissions and encouraging the growth of wind and solar energy.

The IEA also says that renewable sources are set to overtake gas as the second biggest source of energy “soon after 2010”.

Renewables will be the fastest source of energy growth, the IEA predicts.

But it also warns that on current trends, greenhouse gas emissions will far exceed the levels that climate change scientists say are safe.